AIG in Canada has just released a new 30 year term life insurance product that’s very interesting. I’m going to put aside the issue most folks currently have with AIG (given the bailout of their US corporate parent). I would like to preface this with a comment though. I personally prefer 30 year term life insurance conceptually over most other types of term insurance, for most cases. I think 30 year term better fits the child rearing need, mortgages, and the need to insure younger people’s income better than say 20 year term. Nevertheless in most cases we recommend 20 year term due to cost reasons. 20 year term life insurance is roughly half the cost of 30 year term and for most cost sensitive consumers they prefer to rely on the conversion privilege if needed.
Here’s the deal with AIG’s new 30 year term. At the end of the term, it automatically renews as level term to 100 life insurance. That means level premiums for the rest of your life, guaranteed never to increase. This is a great idea they’ve got. In our younger years we want and need high levels of protection at the lowest premium we can get. 30 year term fits that need well. As we age however, our preferences tend to move towards permanent life insurance coverage. No longer are we looking at high amounts to look after our kids and dependents, we generally start thinking about leaving a legacy, covering off funeral costs and other permanent type needs. For those of you who are term believers all the way, you’ll have to trust me that in fact most people do tend to lean that way :).
The question I had was how the renewals look – the level term to 100 renewal. It turns out, they’re cost competitive with other non-level term to 100 renewals. They’re also half the price or less! of other term to 100 products available today.
Let’s run some numbers shall we? I took a 40 year old male nonsmoker, regular health for $500,000 and ran a Compulife quote for 30 year term (this is the same comparison available in the top right corner of this site – though our internal version does have some additional information that we can’t conveniently provide online). Here’s the results.
Primerica comes up number 1 at 108.30. However their product does not have a conversion option – and I cannot recommend a term product that does not have conversion (I’ve had 70 year old’s call me with life insurance that didn’t have the conversion feature – and they’re basically screwed if their health is bad).
Outside of AIG, the other three companies available are Industrial Alliance, Transamerica, and Unity. All three have conversion. However for this age, Industrial Alliance renewals are YRT (you don’t want annually increasing costs of insurance that are age based at age 70, so you’d have to convert if you wanted to maintain your insurance coverage and can’t take a medical). Transamerica and Unity Life renew level for another 10 years and 15 years respectively, at which point the policies lapse. Both of these products have renewal premiums at age 70 just the far side of $2000 for this case. So does AIG – but remember those AIG premiums remain level for life, not just for 10 or 15 years.
So in comparison to existing renewal premiums available on 30 year term life insurance, AIG’s renewals win hands down. They’re the same price or cheaper than similiar products – yet they renew level for life instead of expiring like most term products.
So now we’re 70 – how does our renewal premium look compared to what’s available at that time? Well we won’t know for 30 years, but lets compare it to what’s available today. AIG’s 30 year term again shines. The exact renewal premium is 2082.60 per month. I did a very rough present value calculation at 3% inflation (2082.60/1.03^30) and end up with a premium of $858 in today’s money. In other words, the real cost of $500,000 at age 70 for that insurance coverage is $858 if you bought it today. Now how does that compare with what’s out in the marketplace? You won’t believe this – it’s half the price. A Universal Life insurance comparison for a 70 year old for $500,000 done today (you can check this on our quote system above) is $1779 per month. And to get that premium, you’ve got to take and pass 🙂 a medical exam. Or if you had purchased the AIG product 30 years ago, you’d have access to that coverage at less than half that price at $858, and NO Medical Exam!
All in all AIG has really out done themselves with this product. I’d be in love with it and offering it to all of my clients if it weren’t for two drawbacks. The first one is as I noted, AIG’s bailout issues which has consumers skitterish, and the second one is still the large price discrepancy between 20 and 30 year term. What we need is a company that doesn’t have AIG’s perception issues to do this, with a slightly lower price differential. I would be recommending such a product to most of my clients. It would be exactly what most term purchasers need, at a viable price. And as an advisor, I’d be certain that once the coverage is in place the clients would be unlikely to need much further advice – ever! (though for you actuary types, you’d better read up on your lapse based assumptions before doing the pricing :). If the market place had such a product clients would likely never lapse such a product).
If you have questions about 30 year term, 20 year term, or any kind of term life insurance coverage, feel welcome to contact The Term Guy toll free at (866) 662-5433.
*update* I use a software database to quote all these rates. I’ve just received notice that the database was showing the renewals on Transamerica incorrectly. In fact, Transamerica’s 30 year term also renews out level to age 100, just as the AIG product does. That makes Transamerica’s 30 year term currently cost competitive with others in the marketplace. Transamerica also has a few other features that they like to promote, but it’s my opinion that the additional features are not worth any additional premium (if they’re free great, otherwise I wouldn’t pay for them).